It seemed pretty clear from public news stories on Make & Take that the founders sold unregistered franchises in violation of franchise laws, that they freely touted prohibited earnings claims and, when the concept didn’t work, the company founder Michele Bellso blamed the franchisees for their failures.

Our stories on Make & Take Gourmet are cautionary tales for both franchisees and young franchisors:

Make & Take Gourmet, Michele Bellso Accused of Franchise Fraud (AG)

MAKE & TAKE GOURMET: 3 Franchisee Groups Reportedly Suing

MAKE & TAKE GOURMET: Franchisees Sue Meal Prep Franchisor

Meal Prep Franchisor Blames Franchisees…

In a recent lawsuit, Make & Take Gourmet franchisees were unsuccessful in including the Bellso’s attorneys in their lawsuit… probably bad news when it comes to actually collecting any judgements.  Here’s the ruling upholding the dismissal of Bond, Schoeneck & King, PLLC from the suit:

TYSZKA v. MAKE & TAKE HOLDING, LLC

2010 NY Slip Op 03680

SHAWN TYSZKA, LISA TYSZKA, LAT HOLDING, INC., TYSZKA, LLC, CHERYL GRENGA, EUGENE GRENGA, GINNYJO, LLC, BRIAN CLARK, LISA CLARK, MAKE & TAKE GOURMET — CLIFTON PARK, LLC, FORMERLY KNOWN AS FRESH COAT PAINTING, LLC, PLAINTIFFS-APPELLANTS,
v.
MAKE AND TAKE HOLDING, LLC, ET AL., DEFENDANTS, AND BOND, SCHOENECK & KING, PLLC, DEFENDANT-RESPONDENT.

CA 09-01876.

Appellate Division of the Supreme Court of New York, Fourth Department.

Decided April 30, 2010.

EINBINDER & DUNN, LLP, NEW YORK CITY (MICHAEL EINBINDER OF COUNSEL), FOR PLAINTIFFS-APPELLANTS.

BOND, SCHOENECK & KING, PLLC, SYRACUSE (JONATHAN B. FELLOWS OF COUNSEL), FOR DEFENDANT-RESPONDENT.

PRESENT: CENTRA, J.P., PERADOTTO, LINDLEY, SCONIERS, AND GORSKI, JJ.

It is hereby ORDERED that the order so appealed from is unanimously affirmed with costs.

Memorandum: Plaintiffs entered into agreements with defendant Make and Take Holding, LLC (Make and Take) to operate franchises, and they commenced this action seeking damages based on alleged violations of the Franchise Sales Act ([Act] General Business Law § 680 et seq.) after the franchises were closed. Supreme Court properly granted the motion of Bond, Schoeneck & King, PLLC (defendant), a law firm, to dismiss the complaint against it for failure to state a cause of action. The first cause of action alleged, inter alia, that defendant willfully and materially aided Make and Take in selling the franchises and thus was liable pursuant to General Business Law § 691. Pursuant to section 691 (1), a person who offers or sells a franchise in violation of specified sections of General Business Law article 33 “is liable to the person purchasing the franchise for damages . . . .”Section 691 (3) provides in relevant part that “[a]n employee of a person so liable[], who materially aids in the act o[r] transaction constituting the violation[] is also liable jointly and severally with and to the same extent as the . . . employer.” We reject plaintiffs’ contention that defendant is an employee of Make and Take. Section 691 (3) does not define employee, and we thus interpret that term using its common law definition (see generally Nationwide Mut. Ins. Co. v Darden, 503 US 318, 322-323). Under the common law, “the relationship created between an attorney and his [or her] client is that of principal and agent” (Burger v Brookhaven Med. Arts Bldg., 131 AD2d 622, 624). Defendant was thus either an agent of Make and Take or an independent contractor, and was not its employee (see Bynog v Cipriani Group, 1 NY3d 193, 196, rearg denied 2 NY3d 794).

The second cause of action, which was asserted only against defendant, alleged that it aided and abetted the violation of the Act in derogation of the common law. Section 691 (5) provides that, “[e]xcept as explicitly provided in this article, civil liability in favor of any private party shall not arise against a person by implication from or as a result of the violation of a provision of this article or a rule, regulation or order hereunder. Nothing in this article shall limit a liability which may exist by virtue of any other statute or under common law if this article were not in effect.” We agree with the determination of the court in its written decision that “[t]he final sentence of the provision preserves [preexisting] common law claims which would exist under the common law if the Act were not in effect, [but that], here, the only violation alleged as against [defendant] is aiding and abetting a violation of the Act itself, not a free-standing common law violation. For claims arising out of statutory violations of the Act, the Act itself provides the plaintiffs with their exclusive remedy.”

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We hear a lot of companies claiming to offer the best franchises opportunities, but what are the worst franchise opportunities?  Our recent post 15 Worst Franchises by SBA Loan Defaults listed the franchise concepts with the highest rate of SBA loan defaults for 2008.  

The Super Suppers franchise was listed as the 3rd worst.  According to Katie Adams of Investopedia:

3. Super Suppers

At the height of the market, working families expanded their spending to include luxuries such as cleaning services, lawn services and even assemble-your-own dinner services. Super Suppers jumped on the concept and its franchise growth was exponential between 2005 (40), to 2006 (152), and 2007 (206). However, the growth stalled with no new franchise owners coming on board in 2008, and existing owners with SBA loans began failing at a quick pace – 42%, to be exact, in 2008.

The high default rate for Super Suppers – and the rest of the dying “Meal Prep” segment – is no surprise.  We’ve been discussing this doomed franchise concept from the beginning:

MEAL ASSEMBLY: Meal Idea Fails to whet the appetites

MEAL PREP: “You Can’t Fix Stupid”

MEAL PREP: Another One Bites the Dish

MEAL PREP

Image: Super Suppers website

ARE YOU FAMILIAR WITH THE SUPER SUPPERS FRANCHISE OPPORTUNITY?  SHARE YOUR THOUGHTS BELOW.

On the heels of a multi franchisee lawsuit and stores defecting and/or closing, Michele Bellso and her ill-fated Make and Take Gourmet meal assembly kitchen franchise chain have taken yet another hit – this time from the Maryland Attorney General.

After conducting a thorough investigation, the Securities Division of the Office of the Attorney General of Maryland “finds grounds  to allege that Respondents Make and Take Holding, LLC and Michele Bellso violated the registration, disclosure, and antifraud provisions of the Maryland Franchise Law, in relation to the offer and sale of a Make and Take Gourmet franchise in Maryland.”  The Maryland AG has issued an Order to Show Cause, giving Bellso and Make & Take Gourmet an opportunity to “show cause” why a final order should not be entered against them.

Make & Take Gourmet Sold Unregistered Franchises

…section 14-228 of the Maryland Franchise Law makes it unlawful for any person to offer or sell a franchise in Maryland or to a Maryland resident unless the offering has been registered with the Commissioner before the person offers to sell, through advertisement or otherwise, or sells the franchise in Maryland…

The Maryland AG alleges that Terri Morgan, a Maryland resident, visited the Take & Bake Gourmet website in January 2007 and requested franchise information.  She was then contacted by Jim Bellso, Michele Bellso’s brother-in-law and a Make and Take employee, and discussed the Make and Take Gourmet franchise opportunity.

Despite the fact that the Make & Take Gourmet franchise was not registered either in Maryland or New York, as required, Dave Menapace, Make and Take’s Franchise Sales Manager, conducted meetings and store tours with Morgan.  Michele and David Bellso also met with Morgan despite not being registered to offer franchises.

Make & Take Gourmet Violated Franchise Disclosure Laws

…section 14-223 of the Maryland Franchise Law makes it unlawful for any person to offer or sell a franchise in Maryland or to a Maryland resident without first giving a prospective franchisee a copy of the offering prospectus and a copy of each proposed agreement that relates to the sale of the franchise at the earlier of: (1) the first personal meeting of the franchisor and the prospective franchisee to discuss the possible sale of the franchise; or (2) 10 business days before the execution of a contract or payment of any consideration that relates to the franchise relationship…

Even though they had not provided the required disclosure documentation and offering prospectus, Make & Take Gourmet personnel aggressively recruited franchisee Terri Morgan;  Michele Bellso discussed with her various details of the Make and Take franchise opportunity, including the business concept, the costs to open a franchise, build-out expenses, using contractors to construct the space, and finding an appropriate location…

On July 7, 2007, Terri Morgan signed a Franchise Agreement to operate a Make and Take Gourmet franchise in Pasadena, Maryland.  The document allegedly left out mandatory language regarding the requirement that Make and Take Gourmet defer receipt of all initial fees and payments from franchisees until Make and Take completed its material pre-opening obligations to the Maryland franchisees.

Make & Take Gourmet Made Illegal Earnings Claims

…section 14-229 of the Maryland Franchise Law and COMAR 02.02.08.16(D) prohibit any person, in connection with the offer or sale of a franchise, directly or indirectly, to make any oral or written statements concerning the potential earnings from operation of a franchise (“Earnings Claim”) if that Earnings Claim has not been included in the franchise disclosure document required to be filed with the Commissioner…

The Maryland AG alleges that Michele Bellso told Terri Morgan that a franchise owner could earn “$400 – $500 a day” just in sales of pre-packaged meals “grab and go” meals.  On February 21, 2007, salesperson Dave Menapace emailed Morgan a document named One Year Revenue Projections for Make and Take Gourmet that includes a column projecting “gross income” of $1,185,740 in one year and an annual net income of $287,596.  In March 2007, a Make and Take representative directed Morgan to an article that appeared in the Central New York Business Journal that quotes David Bellso as stating that the Make and Take Gourmet store in Cicero, New York expected that year to “generate annual revenue of $1.2 million to $1.5 million.”

After operating a year, Morgan has not begun to approach the revenue figures represented in the Revenue Projection nor earned anything close to $400 – $500 a day in sales of grab and go meals at her Make and Take Gourmet franchise.

What do you think?  Share a comment below.

Dave Bellso, interviewed for the article, sounds perplexed:

“For some reason, the whole concept is just not doing very well,” said Dave Bellso, whose wife owns the Make & Take Gourmet chain, based in Syracuse. The two-year-old company had a store at The Crossing shopping center in Clifton Park, but closed it after a year for lack of business.

“When the industry first started, the research from the early stores showed it was a destination,” he said. “As the industry grew, that changed.”

This is a man who owns an advertising agency that claims to be the leader in meal prep marketing. His analysis is that the research showed that the early stores were destinations, but “as the industry grew,” the stores were no longer destinations?

In other words: “People are no longer coming to our stores and we don’t know why.”

Strangely, the Bellsos sound more certain when they’re selling franchises. In fact, the Take & Bake Gourmet website Dave Bellso’s agency built states “Our taste-tested recipes are so delicious they’ll keep coming back for more.”

It states: “Meal assembly kitchens are one of the hottest trends in the food industry.”

“We are excited to share this exciting, proven concept with you…”

“As seasoned marketing professionals we know how to “brand” and promote the business.”

“We have the pulse on consumer buying trends so that we can grow and change our business model to keep up with those trends faster than our competitors.”

“Our taste-tested recipes are so delicious they’ll keep coming back for more.”

“We will be able to assist you in developing effective, results-oriented marketing plans.”

“There is no limit to how many stores you can own. It all depends upon your desire for growth… It is actually advantageous to own more than one store in a market.”

It will be interesting to see what story the Bellsos will be telling tomorrow. It seems to change from day to day.

WHAT DO YOU THINK? SHARE A COMMENT BELOW.

Related note: Bob Niedt of Syracuse.com wrote: ” Speaking of Towne Center, Make & Take Gourmet did a fast exit. The meal-preparation store announced its closing at the top of the week and by midweek, it was gone.”

Towne Center was one of the two Bellso-owned corporate stores.

Area entrepreneurs find customers’ hunger lacking for assembling own dinners

Rarely has a new retail business idea been embraced by entrepreneurs so quickly, only to fail so spectacularly, as did the “meal assembly” concept.

Never heard of it? That seems to be the problem.

In the Capital Region, no fewer than five individual stores offering the model have gone out of business. That’s out of seven — the two others, in Ballston Spa and Clifton Park — say they are still doing well.

Dinners by Design and an Independent do get honorable mentions as 2 of the remaining Meal Assembly Kitchens in the area, both who say they are “doing well”. While I hope the “doing well” part is true, the statement comes from a newly-minted second generation Independent owner that has only owned the store for a month. Dinners By Design as a franchise has been experiencing quite a shake-up lately. We certainly wish both stores continued success though.

Mr. Wechsler says:

Unfortunately, the idea just didn’t catch on — not here, and not in many other places in the country.

That would have to be the understatement of the century! It is also refreshing not to have Easy Meal Assembly/Prep “expert’s” pronouncements and outrageous quotables in this article. I am certainly glad to see a balanced article about the Meal Assembly industry.

What tickles me the most is that none of the Franchisors who are quoted here, seem to have a clue as to why the concept is a stinker.

“For some reason, the whole concept is just not doing very well,” said Dave Bellso, whose wife owns the Make & Take Gourmet chain, based in Syracuse. The two-year-old company had a store at The Crossing shopping center in Clifton Park, but closed it after a year for lack of business.

“When the industry first started, the research from the early stores showed it was a destination,” he said. “As the industry grew, that changed.”

This is the same Bellso’s that are being sued by some of their franchisees for alleged fraud and has one reported store going independent.

This is the part I like the best! Franchisors “muse” about the concept failure-while hundreds of store owners are closing their doors and losing hundreds of thousands of dollars in some cases.

Those in the business muse as to why the idea failed in so many places. Some wonder if the corporate franchise fees were too high. Or perhaps the high cost of buying and preparing food day after day made it too expensive.

Wait a minute too expensive for whom? For the store owner or the customer? This IS a food business right, whose entire marketed reason for being is touted as being a money saver for consumers? It is also a food industry that has THE highest ACCEPTED food costs I have ever seen as a culinary professional.

Maybe customers cut back due to the economy. Or maybe the concept was just not attractive enough. “Not enough people know about it,” said Teresa Shurtz, vice president of operations at Super Suppers, based in Fort Worth, Texas. Now in 42 states, the chain began about five years ago and has about 150 stores.

Super Suppers once claimed to have 270 stores in operation, that means almost 60% of their franchised stores have closed since they started franchising. In my opinion the real story is the catastrophic failure rate of Meal Assembly franchised stores.

Independents and franchised stores alike seem to be suffering from this concept failure.

Locally, closed stores besides Make & Take include the franchised Dream Dinners in Colonie, Super Suppers in Clifton Park and Dinner by Design in Saratoga Springs. The independent Dinner Me Quickly in Colonie also closed.

Fagle-Fedele is the newly minted owner of My Other Kitchen and she along with “others” continue to be stymied as to why MAK stores are continually closing.

“I don’t understand why it’s not working,” Fagle-Fedele said. “The concept is a good one. I’ve never had an unhappy customer.”

This article written by Alan Wechsler can be found at:

http://timesunion.com/TUNews

According to the complaint, “The Tyszka Group, Grenga Group and Clark Group seek damages, punitive damages and rescission of certain licensing, franchise and related agreements, and for attorneys’ fees and costs, related to defendant Make & Take’s sales of franchises in violation of New York General Business Law 683 and 687, and common law fraud pursuant to the laws of the State of New York.”

Allegations common to the three groups include:

Illegal earnings claims. Franchise companies are prohibited from providing sales or profitability information, or projections of potential sales or profitability, except in a specific, designated format within franchise disclosure documents. The three franchisee groups allege that prior to entering into their agreements, Make & Take Gourmet provided them with oral and written earnings claims as to the levels of revenue and profit that they could expect their franchises to yield.

Sale of unregistered franchises. In order to sell franchises in the state of New York, franchisors must be registered with the New York State Department of Law, Office of the Attorney General. The three franchise groups allege that Make & Take Gourmet sold them unregistered franchises, in violation of New York state law.

Violation of franchise disclosure laws. Franchisors must comply with rules and regulations regarding pre-sale disclosure of certain information furnished in a designated format called a Uniform Franchise Offering Circular (UFOC) which contains required information about the franchisor company, management, rights and obligations of both parties and the specifics of the franchise agreement between the parties. The three franchisee groups allege that they were never furnished with a UFOC prior to purchasing the Make & Take Gourmet franchise.

Also named in the lawsuit is Bond, Shoeneck, & King, PLLC, of Syracuse, NY, Make & Take Gourmet’s law firm.

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No surprise, the early, failed franchisees who bought into the ill-planned and hasty franchise program have filed suit against the MAKE AND TAKE HOLDING LLC; BELLSOHOLDING.

Court: Onondaga Civil Supreme
Index Number: 005064/2008
Case Name: TYSZKA, SHAWN; LISA TYSZKA; LAT HOLDING vs. MAKE AND TAKE HOLDING LLC; BELLSOHOLDING
Case Type: Commercial Div-Other Commercial Cases
Track: Expedited
Upstate RJI Number: 08-5064
RJI Filed: 08/01/2008
Jury Status: Unknown
Justice Name: HON. DEBORAH H. KARALUNAS

Attorney/Firm For Plaintiff:
EINBINDER, MICHAEL Attorney Type: Attorney Of Record Status: Active
104 WEST 40TH ST
NEW YORK, NY 10018
(212)391-9500

Attorney/Firm For Defendant:
FELLOWS, JONATHAN B. Attorney Type: Attorney Of Record Status: Active
ONE LINCOLN CENTER
SYRACUSE, NY 13202
(315)218-8100

COSTELLO COONEY & FEARON Attorney Type: Attorney Of Record Status: Active
205 S. SALINA ST.
SYRACUSE, NY 13202
(315)422-1152

DIBENEDETTO, SHELLY Attorney Type: Attorney Of Record Status: Active
205 S. SALINA ST.
SYRACUSE, NY 13221
(315)422-1152

What do you think? Leave a comment.

When the franchisees closed their stores, it was their unrealistic expectations (greed) and failure to “evolve” that was to blame. When the Bellso’s store closes, it’s due to a number of external factors beyond their control.

Dave Bellso blames the closure on a “troubling convergence of circumstances” that include, in his words:

* “We had good customers out there, just not enough of them.”
* “We just don’t have the business out there,”
* “consumers habits have changed so much in the past three or four months.”
* “Summer months… are typically slow in this business.”
* “…Expenses were way too high out there.”
* “…we had that lease, they wouldn’t change…”

WHAT DO YOU THINK? SHARE A COMMENT BELOW.

While Chow rambles a bit (cooking sherry again?), she makes some excellent points about the lack of experience of the MAK cloud merchants:

Karen your point is well taken about folks developing and franchising this failed concept with no food experience- with that in mind, let me quote from an article from the SpokemansReview.com; that I found on Cena’s own website-
Titled “Ingredients for Success” about Cena To Go- FOUNDERS-Nancy Cole-Hough & Tami Badinger- “The women, (Cole-Hough & Badinger) who two years ago were FOREIGN LANGUAGE TEACHERS at Joel E. Ferris High School in Spokane.” Jared Paben, September, 13th, 2006.
http://www.spokesmanreview.com/tools/story_pf.asp?ID=149276
They weren’t even Home Ec teachers for cryin out loud!!

“Badinger and Cole Hough decided to start franchising their small business 11 MONTHS AFTER OPENING IT” – (my emphasis)
“We decided to bust a move EARLY (my emphasis) because if we didn’t, our franchisees wouldn’t be on the ground floor of this burgeoning business,” Cole Hough said. (HMMMM….sounds a little opportunistic in my opinion)

Those quotes PRETTY much sum up everything that is WRONG with what you have to say.

With no culinary experience to speak of with a grand total of 11 months of business experience under their belts-CENA founders started selling franchises 11 MONTHS after opening ONE store in Spokane, Washington, in my opinion, certainly NOT a representative sampling of Any Town USA where these Meal Prep/Assembly Kitchens, Kitchen Outsourcing, Home Meal Replacement have opened and where most have FAILED, even in the “perfect” demographic profiles.

Did Cena’s founders know it would be successful anywhere else?

Did they consider taking their show on the road to see if the concept was viable any where else before they started “selling” franchises for their little experimental concept?

Was their concept fully vetted or did they just see dollar signs?

* * * * *

A very reliable source told me that Super Supper’s just closed 10 stores last month….

One super Suppers store in a town in Ohio closed after being opened only 6 months.

The Supper Supers Ardmore store that Admin relates is frightening and again burns my biscuits to a veritable southern fried crisp…where is the professional FrannieZor guidance franchisees PAY for when they buy one of these “opportunities’? Where is the support?

* * * * *

So, how does a Meal Prep Industry apologist explain the MASS failure of the Meal Prep/Assembly kitchen franchises that DO have a Culinary expert at the helm, Entrée Vous & Super Suppers spring to mind-neither one is doing all that well either. So that argument is shot all to hell too, right?

Even Franchise Great veteran Ex-Gov. John Brown shuttered the doors of his version of the concept after 6 months and 2 or 3 stores under the name “Suzanne’s Kitchen” (as in Suzanne Sommers). He claimed the concept was too labor intensive for consumers and was going to let experienced experts revamp it to be more customer friendly and re-open. That was nearly 2 years ago, I’m guessin’ he was smart enough to see the writing on the wall and got the hell out of Dodge with minimal financial loss- unfortunately the same probably can’t be said for the Franchisees in that organization either. At this point my opinion is that unless you actually eat the food for them it’s not going to get any more customer friendly.

Karen said: “…The convenience of a home-cooked meal, ready-to-cook, sit down with the family, that isn’t full of preservatives, etc….”

The food quality issue is funny because as stated somewhere else on this board, you all get your inventory from the same manufacturers, most from the same distributors.

There is no magic Meal Prep faerie that delivers minimally processed, preservative free ingredients to Meal Prep stores. Don’t get me wrong there MIGHT be some stores that provide that type of finished product, but it comes with a premium price tag, and is therefore no longer cost effective for the consumer.
Folks will actually have a better chance getting better quality, less expensive minimal preservativized ready-made, frozen or M&T meals from Whole Foods, Wild Oats, Tesco, Trader Joes, or even Costco who has take & bake organic fare now, and yes, even from the grocery store; than from ANY Meal Prep/Assembly, Kitchen Outsourcing, Cooking Studio, Home Meal Replacement store. It’s just simple economics and scale of buying power.

Besides, most “meals” from a Meal Prep store have to be prepped at home, thawed before cooking, or at least have some minimal planning that goes into the consumption/usage of the meals.
That is generally beyond the preference/normal practice of most busy family food preparers.

Karen said: “…there might be something to salvage. Get rid of the sessions and call it good – that’s where they’re all headed. Why is it so terrible for it to morph into something slightly different?”
Sorry to be Captain Obvious here, but that is indeed called a grocery store or a restaurant, not a “meal prep/assembly store”

* * * * *

Super Suppers has already become “your make & take place”, Make and on the Take Gourmet has muffed it and puts out these outrageous PR articles, MGFK’s original FrannieZOR has taken the money and ran by selling to another player in this troubled industry for pennies on the dollar to the detriment of former MGFK store owners, Dinners By Design second CEO thinks that a centralized community freezer for stock-piled meals for customers to pick-up or kiosks at Malls for pick meals is the way to go. I think all the players in this game have weighed in and pretty much have this half-baked “morphing” idea covered. And in opinion-all stupid morphisms my. All the while happily “skipping” their franchisees into financial oblivion.
My spidey senses are tingling and I have a sneaking suspicion that nobody in the game has a clue.

* * * * *

Again Karen good luck with whatever it is you do; whether it’s damage control for some lucky frannniezor, a crack PR person, a MAK apologist, propagandist for the industry or if you are indeed a person who is looking to buy one of these things and “morph-it” into a whatever you positive thinker types are calling it now, good luck and God’s speed, you are going to need that and PLENTY of cash in reserve for the lean years.
Thanks for playin’, but where I come from there’s an old sayin’-
“You can’t fix stupid.”